Pakistan’s federal budget for FY2026-27 introduces a series of tax and tariff adjustments aimed at easing the burden on salaried individuals and businesses, with relief focused on higher-income taxpayers, exporters, the real estate sector and selected industries.
The measures include lower income tax rates for individuals earning between Rs2.2 million and Rs7 million annually, the abolition of super tax for incomes up to Rs500 million, lower advance taxes on property transactions and foreign card payments, and customs duty reductions on hundreds of tariff lines. The government has also expanded sales tax exemptions to sectors including electric vehicles, shipping, refineries and publishing.
The changes are intended to support investment, exports and documentation while providing limited relief to households and enterprises.
Income tax relief for salaried individuals
The budget revises income tax slabs for salaried individuals, providing relief to taxpayers earning between Rs2.2 million and Rs7 million annually.
While the top income tax rate of 35% remains unchanged, the threshold for the highest tax slab has been raised from Rs4.1 million to Rs7 million.
Under the revised structure, taxpayers earning between Rs2.2 million and Rs3.2 million will face a 20% rate, down from 23%. Those earning Rs3.2 million to Rs4.1 million will pay 25%, compared with 30% previously.
The tax rate for incomes between Rs4.1 million and Rs5.6 million has been reduced from 35% to 29%, while taxpayers earning Rs5.6 million to Rs7 million will now pay 32%, down from 35%.
Individuals earning above Rs7 million will continue to pay Rs1.424 million plus 35% of the amount exceeding Rs7 million.
The annual exemption threshold remains unchanged at Rs600,000. Those earning between Rs600,000 and Rs1.2 million will continue to pay 1% tax on income exceeding Rs600,000, while individuals with annual incomes between Rs1.2 million and Rs2.2 million will pay Rs6,000 plus 11% of income above Rs1.2 million.
The government has also abolished the income tax surcharge on salaried individuals. Salaries of government employees are set to increase by 7%, while pensions will rise by 7%. The minimum wage is proposed to increase by 10%.
Property taxes and foreign payment levies reduced
As part of measures aimed at facilitating the real estate sector, the government has abolished the tax on deemed income from capital assets located in Pakistan and lowered advance taxes on property transactions.
Advance tax under Section 236C for sellers, previously ranging from 4.5% to 5.5%, has been reduced to a flat 2.75%. Similarly, advance tax on property purchases under Section 236K has been cut from a range of 1.5%-2.5% to a uniform 1.5%.
The capital value tax on foreign movable and immovable assets held by resident Pakistanis has also been abolished.
Meanwhile, the advance tax on foreign remittances made through debit, credit and prepaid cards has been reduced sharply from 5% to 0.5%.
Super tax eased, exporters get support
The budget abolishes super tax for individuals and companies with incomes of up to Rs500 million and reduces the rate from 10% to 8% for those earning above that threshold.
However, the concession will not apply to the banking, exploration and production, and fertilizer sectors.
To encourage exports, the government has reduced the combined 1% withholding tax and 1% advance tax on export proceeds to 1.25%.
The preferential tax rate of 0.25% for exporters of IT and IT-enabled services has been extended until tax year 2029.
A tax credit equivalent to 10% of investments made in electronic systems linked with the Federal Board of Revenue’s computerized infrastructure has also been introduced to promote documentation and digital compliance.
The turnover threshold for withholding tax exemption available to small traders has been doubled from Rs100 million to Rs200 million.
Capital markets and charities receive exemptions
The Federal Board of Revenue has proposed income tax exemptions for qualifying special purpose vehicles established for asset-backed securitization, a move aimed at supporting capital market development.
Funds and eligible nonprofit organizations meeting prescribed conditions will be entitled to exemption certificates for the entire financial year.
Tax exemptions have also been extended to specified welfare organizations, including the Pakistan Red Crescent Society, Shaheen Foundation, Bahria Foundation, Sindh Institute of Urology and Transplantation and Dawat-e-Hadiya.
Sales tax relief widened
The budget introduces several sales tax measures affecting various sectors.
Sales tax exemptions have been granted to magazines, while relief on imports of completely knocked-down kits for electric vehicles has been extended until June 30, 2027.
The scope of exemptions on aircraft parts imported and leased by Pakistan International Airlines Company Limited has also been expanded.
New exemptions have been introduced for strategic imports linked to the Shanghai Cooperation Organisation summit and counterterrorism requirements, as well as for capital goods used to upgrade and overhaul refineries.
Sales tax relief has also been extended to support the shipping sector.
At the same time, the government has removed taxes on sanitary products, ending what had been referred to as the “tampon tax”. However, exemptions previously available on family planning devices have been withdrawn.
Customs duties lowered under tariff reforms
Under the National Tariff Policy 2025-30, the government has rationalized customs duties by reducing rates on 92 tariff lines.
Duty rates of 20%, 15% and 10% have been reduced to 15%, 10% and 5%, respectively, while the 5% slab has been abolished.
Additional customs duties have also been lowered, with rates cut from 6% to 4% on 449 tariff lines and from 4% to 2% on 2,107 tariff lines. Additional customs duties have been eliminated entirely on 569 tariff lines.
The measures form part of the government’s broader effort to ease the tax burden, promote investment and exports, and encourage greater documentation and digitization of the economy.